Turning it around

History shows that some of the world’s best companies have risen from the ashes of nasty-looking downturns – Apple launched the iPod just weeks after 9/11. So, today’s tough corporate environment is no reason to sit tight and wait for an upturn. Companies should see now as an opportunity to revamp their products, services and balance sheets and take market share from less active rivals.   

The current environment throws up a number of opportunities for companies to emulate this kind of growth and in the current environment, there is no better time to make acquisitions than when share prices are deflated. Companies that received IPO financing as many did a couple of years ago – notably tech companies – now require follow-on investments for acquisitions or mergers to rationalize their businesses.

However, forward-thinking companies still face the considerable current challenge of putting in place financing for their plans. The scarcity of traditional forms of funding is well known so perhaps the time is right for companies to consider more innovative financing such as venture leasing, private capital and convertible debt investing in public entities.

A more flexible option is an equity line of credit, also known as a Standby Equity Distribution Agreement or SEDA. Different from a share placement, a company sells its equity in tranches up to an agreed limit as and when it needs capital. This reduces the dilution for growth companies and, by providing a guarantee not to become a significant shareholder or short the company’s stock, the investor can address concerns about destabilizing the share price. In that way dealing in the stock is invisible in the market, which helps everyone.

Also, because the commitment is guaranteed, companies can use a SEDA as collateral to support a convertible debt if a single large quantum of cash is needed quickly.  This can be particularly valuable if the company is hunting for acquisitions

But investors can help a company to meet its objectives only if they understand it and its objectives. I am constantly amazed by how many companies fail to really articulate what their company is all about, what makes it unique, what their vision is for its future, what is their game-changing plan? Rather than tell me about their products, their markets and their competitors, too many companies focus solely on the balance sheet. In short, companies need to sell their story.

In difficult times, those companies that are wise enough to seek advice and share information are most likely to survive and thrive. Similarly, I would argue that innovative financing is a competitive advantage. Companies should be aware that if they are not using it, then their rivals probably are.